Can Your Business Survive the Butterfly Effect?

“When a butterfly flaps its wings in one part of the world, it can cause a hurricane in another part of the world.” This famous saying describes today’s complex business environment where trading relationships are global and interlinked. As shown in recent history, a seemingly isolated event, like the floods in Thailand, can produce giant ripples across the seas and shut down automotive and hi-tech manufacturing facilities across the globe.

To manage these intertwined relationships and networks, we have to juggle massive amounts of business information and constant changes in real time. And this issue isn’t going away. In fact, Gartner predicts “Supplier risk will continue to be a major focus, and companies will look to technology for a scalable risk assessment and management solution.” (Predicts 2012: Supply Chain Predictions: Talent, Risk and Analytics Dominate, 18 Nov 2011)

Trends, Challenges, and Opportunities in Mitigating Supplier Risk
Sourcing key components across globe requires visibility into your suppliers and even your suppliers’ suppliers. Do you know how they’re performing for the competition and against the agreed service levels versus their peers?

In a recent Forbes post, I wrote about some of the trends, challenges, and opportunities facing supply chain executives and identified key technologies available today to address these situations:

  • The era of big data.  A comprehensive understanding of the ecosystem means combining various sources of structured and unstructured data across customer supply base, government and regulatory information, news, and third party sources.
  • In-Memory technology. When the “need for speed” meets big data, the need to analyze massive amounts of data for instant business insights is necessary to transform organizations into a real-time business.
  • Social supply chains. In another post, I recently posed the question “Are you ready for the social supply chain?” According to most pundits, the answer is yes! With an estimated 1.2B people (20 percent of the world’s population) on social networks, we’re at a point where social software capabilities need to be prevalent throughout enterprise systems.
  • Supply chains in the cloud. In a recent post, Adrian Gonzalez of Logistics Viewpoint stated that “Traditional enterprise and supply chain software vendors will accelerate their investments in cloud computing and software-as-a-service.” When leveraged appropriately, cloud-based deployments can offer ultimate savings for IT while ensuring a quick on-boarding process.
  • Productive collaboration. Having the collaboration and visibility to detect signals in sub-tier supply chains is the ultimate challenge and the ultimate reward. Proactively monitor alerts in the n-tier network and combine them with other information to create a truly intelligent network and vibrant community vs. something to be feared. Using social networking concepts enables productive collaboration between customers and suppliers through multiple tiers, so that supply chain risk is more transparent.

Predicting Supplier Risk: Key Questions
We’re seeing a growing interest from companies who are looking for ways to leverage these technologies and the social aspects of business networks to predict supplier risk and help improve supplier performance across the n-tier supply chain. In so doing, they’re looking for answers to key questions such as:

  • How do my suppliers perform for others in the business world? Pool together and track common KPIs, such as on-time delivery, and share them as “averages” to compare with customers. This lets customers see what an average delivery performance is for a supplier across the pool, as well as how that compares historically. Are these suppliers improving or deteriorating?
  • Are there suppliers of my suppliers that may cause me a problem? There’s a need to connect supply chains and offer participants the flexibility to share information on their own supply base with their customers. This gives them tier-n visibility into their concerns instead of only being able to review suppliers that provide goods and services to them directly.
  • What’s my supply outlook for the future? Companies need visibility intoreal-time news alerts from news sites on financial data, government debarment information, legal news, and other components to alert users to information that could result in possible disruption or challenges with the supplier.

Are you at risk from the “butterfly effect”?  Imagine knowing immediately which suppliers are most likely impacted by the tragedy in Japan, even if it is a sub-tier issue, and being able to act on the information proactively. Next time a proverbial “butterfly flaps its wings,” make sure you have the information to take appropriate action before the “hurricane” hits.

Follow me on Twitter @howellsrichard.